GameStop (NYSE:GME) has been on one wild ride for the last several weeks, fueled by gains from retail investors looking to get a little of their own back from the hedge funds dominating the market. Such moves are still seen even today, but some of the latest gains seen at GameStop actually have little to do with message board machinations and stick-it-to-the-man investment strategies. Some of the latest are actually connected to a recent roster move that could give GameStop a new lease on life.
Diamond Hands Still Holding
At the end of last week, GameStop had put on an impressive show in the market, gaining for three straight sessions mostly on the strength of more interest from Reddit and the retail investment sector. However, the latest action saw GameStop up 11.4% at one point in premarket trading, which hasn't exactly slowed much going into the trading day.
The latest gains don't seem to be connected to Reddit et al, though, but rather emerge from GameStop's turn for help to Ryan Cohen, the founder of Chewy, or one of the best places to get pet supplies online since Pets.com buckled. Cohen was tapped to lead a strategy committee at GameStop, founded by the board of directors, that will help drive GameStop's push to become a more heavily online company. Cohen had actually placed investment in GameStop last year to help drive the company to such an end—about $76 million worth at last report—and now, Cohen is taking a more personal stance therein.
The committee will be comprised of Cohen, as well as another Chewy alum, Alan Attal, the former lead of operations. Hestia Capital Management's chief investment officer Kurt Wolf will also be stepping in to drive the online push.
Analysts Much More Skeptical
While GameStop's stock price has exploded in recent days and the push to online shopping is becoming clearer, our latest research suggests great skepticism on the part of analysts. In fact, the trend has only become more bearish over the last three months, and it wasn't all that great to begin with.
The company has carried a consensus “hold” rating for the last six months, and the trend is increasingly bearish. Six months ago, the company had two “sell” ratings and five “hold” ratings to its credit. Three months ago, that briefly improved as one of the “hold” ratings turned to a “buy” rating. That “buy” departed the picture a month ago, and actually became a sell, bringing us to a total of three “sell” and four “hold.” That figure is where we remain today.
The price target has gone up steadily throughout that time, however, it's nowhere near what the current share price reflects. Six months ago, the consensus price target was $5.21. That increased to $8.31 three months ago, and then to $11.93 a month ago, where it remains today. Given that GameStop currently trades at $156.75 per share as of this writing, it's clear the downside risk is massive.
A Vital Shift, But a Shift Too Late?
It would be easy to wonder here why Cohen dropped that kind of money into investment at GameStop only to see GameStop make comparatively few moves to actually accomplish what the investment was supposed to go toward. Of course, last year at this time was a very different animal from what we're seeing right now; “15 Days to Slow the Spread” will have its one-year anniversary about a week from today and we're still seeing places operating under such protocols, to at least some extent. Is it too late to make a move to e-commerce? No, not really; we've already seen the kind of impact such a move can have when an economy is shut down by government mandate. Making such moves today only helps prepare for the next time something like this happens, which may be much sooner than any of us really want to countenance.
The problem for GameStop here is that it's making an important move potentially too late for itself as a company. Its actions during the pandemic weren't exactly ideal; telling low-level cashier staff to directly challenge the police on GameStop's status as an “essential business” was a low point at best. Now, with GameStop making an increased push into online operations, it's going to have to take on the likes of Amazon (NASDAQ:AMZN), who has been doing pretty much everything GameStop plans to do now, but for much longer and probably better. GameStop may be able to get somewhere by streamlining the process, but used game holders have been burned by GameStop and its store-credit offers before.
Only time will tell how this all works out; while GameStop is certainly moving in the right direction, it took a lot of time to get there, and it's made its share of enemies in the process. A wait-and-see approach may be the best plan for those interested in investing with GameStop, especially at the elevated share prices we're currently seeing.
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